A financial transaction tax (sometimes referred to as a Tobin Tax, Wall Street Tax, or Robin Hood Tax) is a tiny fee — at rates of a fraction of a percent — on trades of financial instruments, such as stocks, bonds, and derivatives. Such taxes are promoted as having the dual benefits of discouraging short-term speculation while generating significant revenue.

While the Obama administration is not yet supportive, on January 12, 2015, the Democratic leadership in the U.S. House of Representatives announced support for FTT as a core element of a new tax reform plan. In Europe, 11 governments are moving forward to implement the first regional FTT. In January 2013, they received authorization to form a “coalition of the willing” to implement a coordinated FTT. These countries include: Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, and Slovakia. The starting point for negotiations was a European Commission proposal for a tax of 0.1% on stock and bond trades and 0.01% on the notional value of derivatives. Trading platforms and clearing houses would collect the taxes and pass on revenue to national tax authorities.

On May 6, 2014, these governments announced a plan to start phasing in the tax starting on January 1, 2016, beginning with transactions of shares and “some derivatives.” At the end of 2014, they missed a scheduled deadline to agree on the tax design, but aim to finalize the plan in early 2015. Some countries, led by Germany, have pushed for a broad-based tax similar to the EC proposal, while the French finance ministry has favored limiting the tax to shares transactions—at least at a first stage. However, after 120 parliamentarians from his own party objected to a watered-down approach, French President Hollande announced in a January 5, 2015 radio interview that he would support a broad FTT (although with rates on some instruments lower than proposed by the EC if necessary to capture sensitive markets).

4. How much revenue could be raised?

The European Commission estimates that their original proposal would generate about 31 billion euros ($US 42 billion) per year for the 11 participating countries. Limiting the tax to only share transactions would reduce the potential revenue to roughly 6 billion euros ($US 7.2 billion) a year, according to the French government. In the United States, the Joint Committee on Taxation has produced a score for only one of several FTT bills, concluding that a tax of 0.03% on stock, bond, and derivative trades could raise $350 billion over 10 years.

5. Would FTT hurt average investors?

The cost would fall overwhelmingly on short-term speculators. For most pension funds and traditional stock-and-bond-holders, the cost would be negligible—in fact less than typical portfolio management fees. Moreover, to the extent that FTT encourages investment that boosts the economy in the long term, this will benefit retirement funds. The 50% or so of U.S. households that have no investments in financial markets would be completely unaffected.

The European Commission has conducted extensive analysis of the potential benefits and risks of financial transaction taxes. Their responses to common questions are relevant to debates in other parts of the world — read some of them in the full version of this FAQ [PDF].

6. Who supports a financial transactions tax?

Plenty of business leaders, financial industry professionals, politicians, economists, and world leaders support a financial transactions tax. George Soros, Bill Gates, Paul Krugman, Jeffrey Sachs, Joseph Stiglitz, Kofi Annan, Al Gore, and Archbishop Desmond Tutu are among the many who have spoken in favor of FTTs.

For a full list of notable FTT supporters, including statements of support for a FTT, read our full FAQ [PDF].

7. What do the polls say?

In a January 2013 poll conducted by Hart Research for Americans for Tax Fairness, over 6-in-10 (62%) of respondents approved – and one-third (34%) strongly approved – a “small tax on all stock/bond/market trades.”

A December 2012 survey by the Mellman Group for Friends of the Earth found that among American voters, two-thirds favored the FTT, saying yes to “taxes on Wall Street banks that helped create our economic problems.” A majority of poll respondents favored reining in “the casino culture of Wall Street” and “skimming the fat off a sector that can afford to pay.”

In November 2012, a Democracy Corps national post-election survey found that two-thirds (66%) favor and almost 4-in-10 (38%) strongly favor instituting “a financial transactions tax and a ‘too big to fail’ fee on the largest banks and financial institutions to discourage risky investments and guard against more bailouts.”

An International Trade Union Confederation Global Poll conducted in April and May 2012 also determined that among U.S. respondents, over 6-in-10 (63%) favor “a financial transactions tax – which is a small levy on large transactions of currencies, bonds and shares … The idea behind this levy is that this would be a good way for the banking sector to contribute back to society for their part in the financial crisis.”

A Euro-barometer survey shows 82% of German and 72% of French citizens support a European FTT. Across the EU, support was 64%.